Fraud Enforcement and Recovery Act of 2009--Motion to Proceed

Floor Speech

FRAUD ENFORCEMENT AND RECOVERY ACT OF 2009--MOTION TO PROCEED -- (Senate - April 20, 2009)

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Ms. KLOBUCHAR. Thank you very much.

Mr. President, I thank my colleague from Oklahoma for being so gracious to allow me to speak at this time. I am speaking today in support of the Fraud Enforcement and Recovery Act which I believe is an important and timely piece of legislation that I cosponsored and helped to vote out of our Judiciary Committee. I also thank Senators Leahy, Grassley, and Kaufman, all of whom spoke this afternoon, for their leadership and their work on this bill. I believe this bill will greatly increase our ability to prosecute and prevent financial crime.

I also note that the President and the administration have come out with their statement on administration policy on this bill and it is very positive, and they are supportive of this bill.

Unfortunately, the need for this legislation could never have been clearer. The Madoff scandal is only one big example of why we need this bill. Because of one man--one man--$65 billion has been lost in this country. It has been a loss to investors, a loss to people who have nothing left, a loss to some of the charities and charitable organizations in this country that are trying to help people in need during this difficult time. In my home State of Minnesota, literally dozens and dozens of people have lost significant sums of money, and our charities are suffering. This isn't right.

After years of lax oversight and investigation, we are beginning to see many financial crimes come to light as the victims of financial fraud have emerged to tell their stories.

During a recent Judiciary Committee hearing on fraud enforcement, the Acting Assistant Attorney General for the Criminal Division of the Justice Department said that as the economy has declined:

What we may be starting to see [are] ..... these sorts of Ponzy schemes that were able to go along for a little while. And then all of a sudden, there's a rush by the victims of schemes who don't know they're victims yet. And then the money's not there when they go to get the money out.

In other words, as we would say in Minnesota, the chickens are coming home to roost.

All of this reminds me of a famous passage about embezzlement in John Kenneth Galbraith's classic book, ``The Great Crash 1929.'' I remember this because I would often use it as a prosecutor in Minnesota when I would address the legislature about the need to focus on white-collar crimes, especially in times of economic difficulty, and this is what he said:

In goods times, people are relaxed, trusting, and money is plentiful. But even though money is plentiful, there are always many people who need more. Under these circumstances the rate of embezzlement grows [and] the rate of discovery falls off. In depression, all this is reversed. Money is watched with a narrow, suspicious eye. The man who handles it is assumed to be dishonest until he proves himself otherwise. Audits are penetrating and meticulous. Commercial morality is enormously improved.

This may be an almost perfect description of our own time. As Galbraith suggested, our bad economy is now exposing financial crimes that have been concealed for many years.

In the past 3 years, the number of criminal mortgage fraud investigations opened by the FBI, as Senator Leahy explained, has doubled. And in the past 6 years, there has been a nearly tenfold increase in the number of reports filed with the Treasury Department alleging mortgage fraud.

I fear this is the tip of the iceberg. As our economy has declined, crime will be on the rise. And with billions of dollars going out the door to stimulate the economy--important job-creating investments in transportation infrastructure and broadband networks and much more--we know there are going to be people trying to bilk the system, whether it is for that or the TARP money, and steal money for their own personal profit.

So it is critical that we have a Justice Department and an FBI that will hold accountable the people who are getting government funds, that will watch over the taxpayers' money, and that will make sure people such as Bernie Madoff are prosecuted and brought to justice. In order to do that, we need to make sure law enforcement has the tools and the resources they need to effectively fight, investigate, and prosecute these crimes.

Before entering the Senate, I served as the chief prosecutor for Hennepin County in Minnesota, which consists of Minneapolis and 45 suburban communities. We worked extensively with the U.S. Attorney's Office and the FBI and other Federal agencies on white-collar crime. I remember it well because after the tragedy on 9/11, a number of the white-collar cases that were previously being prosecuted by the U.S. Attorney's Office came to our office since we were the largest prosecutor's office in the State. We took both cases on. We got the people in place to handle them. But I saw then how resource intensive these cases can be.

Most prosecutors have a simple saying about financial fraud cases: ``Follow the money and you will find the crooks.'' Of course, in reality, it is often very hard to do that. It is very time consuming and very expensive to look through thousands and thousands of boxes of documents and computer files to find that money trail and to follow it to where it goes to mortgage fraud and financial fraud. In fact, many white-collar crimes require complex investigations and significant resources to catch the crooks and prosecute them. They often require special--and expensive--expertise such as individual skills in accounting or computer forensics.

Although it is hard and more complex to catch white-collar criminals, it is no less important. For the sake of our economy, for the sake of justice, we must hold people accountable for their crimes, whether it is robbing a convenience store or using a computer to bilk investors out of millions of dollars.

Prosecuting financial crimes also has a ripple effect. Increased enforcement acts as a deterrent, sending a clear message to those who might want to commit financial fraud that wrongdoers will be prosecuted and subject to the full extent of the law. So oftentimes these white-collar criminals somehow see themselves above the law because they have a good job and because they know people in town. I can say that once we started prosecuting these
when we started prosecuting nine commercial airline pilots for not paying taxes to the Minnesota Revenue Department. We suddenly got millions of dollars into the coffers of the revenue department in the State of Minnesota because it turned out other people were also maybe opening up post office boxes in other States and pretending to live there instead of in our State. So there can be a great deterrent effect and bring money in from people who haven't been paying their taxes or actually committing fraud.

Unfortunately, in the last 8 years on the Federal level, I believe there hasn't been enough of this, partly because we haven't had the resources and partly because some of the regulatory agencies have been basically asleep at the wheel.

After the attacks on September 11, the FBI understandably reduced its criminal investigator work to expand its national security role, shifting more than 1,800 agents--or nearly one-third of all agents who were in criminal programs--to terrorism and intelligence duties. Current and former officials say that the cutbacks have left the FBI seriously exposed in investigating an area such as white-collar crime. Right now, the FBI doesn't have enough staff to investigate or even review the 5,000-plus fraud allegations that the Treasury Department receives every month.

Make no mistake, this is having an effect on our economy. In addition to the many families losing their hard-earned money and their homes, fraud has contributed to the collapse in the mortgage-backed securities market. In the past year, banks and financial institutions in our country lost more than $500 billion because of the subprime mortgage industry.

That is why the Fraud Enforcement and Recovery Act is so important. The bill authorizes $165 million a year for the Justice Department to hire fraud prosecutors and investigators, including funds for the FBI to bring on an additional 190 special agents and more than 200 professional staff and forensic analysts to rebuild its white-collar investigation program. Additionally, the bill will provide resources for the FBI to double the number of mortgage fraud task forces nationwide that target fraud in the hardest hit areas of our country. I am a big believer in these task forces as a way of bringing local and Federal law enforcement together. We have seen it work effectively in a number of areas across the country.

In addition to making sure law enforcement has the resources it needs, this legislation also makes sure they have the tools needed to crack down on financial crime. This bill makes it easier to prosecute mortgage lending businesses for fraud--the predatory lenders. These companies were responsible for nearly half of the residential mortgage market before the economic collapse. Yet they currently remain largely unregulated and outside the scope of traditional Federal fraud statutes. This makes no sense. By amending the criminal code, we can hold unregulated mortgage businesses responsible for their actions. Federal fraud laws should apply to private mortgage businesses such as Countrywide Home Loans and GMAC Mortgage, just as they apply to federally insured and regulated banks. I know we have a lot of very healthy banks in Minnesota and they have been fighting for this for years.

Why should they be held to a different standard? Why should some of these mortgage companies not be held to the same fiduciary duty as these banks? As a former prosecutor, I know firsthand how challenging it can be to go after these financial crimes, but I also know how important it is. If we are going to get our economy back on track, we have to restore trust in our financial system. That starts with stopping fraud and crime. The Fraud Enforcement and Recovery Act will give our law enforcement agencies the tools and resources they need to do this.

I strongly urge my colleagues to support this bill and to support this incredibly important piece of legislation. The time is right. We not only have the fraud we are already seeing come to light but we also know there are a number of possibilities for fraud as we have seen in the past when government funds go out. There has to be the policeman on the corner. That is our FBI, that is our task forces with local law enforcement, and that is our prosecutors watching what happens so we don't let another Bernie Madoff slip through the cracks.

Thank you very much, Mr. President. I yield the floor.

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